Judge stays e-book class action case against two publishers

Publishers Hachette and HarperCollins slipped further away from the class action lawyer who wants them to pay over an alleged e-book price-fixing conspiracy.

In an order signed yesterday in New York federal court, Justice Denise Cote ruled that the class action could be halted on the grounds that the publishers are close to a consumer restitution settlement with state governments.

What this means in practice is that the class action lawyers will be frozen out because the state governments’ deal trumps the consumer class action.

In a letter to Cote, lead class action lawyer Steve Berman said the court should only suspend part of the proceedings because many states might not take part in the agreement. He also said the two publishers should have to share documents related to the Justice Department’s antitrust investigation, but the judge’s order means that will not happen for now.

The two publishers, for their part, have entered a memorandum of understanding with several states, and have suggested a deal with all 50 states is imminent. The publishers would likely have to pay millions under a settlement, but it would allow them to escape the class action proceedings and avoid the risk of a jury award that could be even higher.

Class action lawyers filed more than two dozen suits last summer, accusing five publishers of conspiring with Apple to wrest pricing power from Amazon. The Justice Department reached a settlement with three of the publishers last month. Critics say the deal is a gift to Amazon. (See our “everything you need to know about the DOJ lawsuit” post here.)

Publisher Simon & Schuster is also in talks with the state governments but did not receive a stay this week because it hasn’t signed a formal memorandum.

Meanwhile, two other publishers, Macmillan and Penguin, are denying the conspiracy and fighting both the class action lawyers and the government. Penguin is claiming the class action is invalid because users of Amazon Kindle and Barnes & Noble’s Nook agreed to settle any disputes through arbitration.

Apple has also denied all conspiracy allegations and is digging in for a long fight.